Schumpeter makes a point I've been emphasizing in discussing the LIBOR scandal:
BOOSTERS of financial regulation are making hay from the widening scandal over allegations that LIBOR, a key interest rate, was rigged repeatedly for at least five years since 2005. Yet the trove of documents that have emerged also reveal the very flawed nature of regulation, in which government bureaucrats are asked to keep tabs on high-flying financial sorts. Transcripts of calls between officials at the Federal Reserve Bank of New York and traders at Barclays show that regulators didn’t really pick up on cues, even when they spelled out misbehaviour.
LIBOR, of course, is not the only pertinent example. Also in current news are the regulator failures at Peregrine Financial Group:
The Wall Street Journal reviewed the letters, which a person familiar with the situation said were left by Peregrine Chief Executive Russell Wasendorf Sr. They offer the first account of where Peregrine's missing money might have gone in a case that has left holders of thousands of accounts facing possible losses and fueled new concern over regulation of the futures-trading industry.
One of the notes, which was a general statement describing Mr. Wasendorf's alleged fraud and signed by him, says regulators first examined Peregrine's use of client funds as far back as 1993, triggering Mr. Wasendorf to start his alleged fraud. Deceiving the regulators was "relatively simple," said the statement. ...
The statement indicates a potentially closer involvement by the CFTC in overseeing Peregrine, commonly known as PFGBest, than previously thought. The CFTC has said it left the day-to-day regulation of Peregrine to the National Futures Association, an industry self-regulatory body. Thus, the note could put further pressure by investors and lawmakers on the CFTC for missing the scandal, particularly given the intense scrutiny alleged in the note.
If we can't trust regulators to capably enforce the laws on the books, why would we remotely think that more regulation is the right answer?
